Wednesday, November 09, 2005

Bill's Hideaway, Part II

“It’s clear that if we fail to do so [adapt to changes in online business models], our business as we know it is at risk.”

Thus writes Ray Ozzie, the genius who developed Lotus Notes and is now Microsoft’s Chief Technology Officer, in an email “sent to top Microsoft executives and engineers.”

I made a modest suggestion earlier this year that Microsoft founder Bill Gates spend less time holed up in a cabin for weeks on end thinking great thoughts about technology (I am not making that up, he really does do that) and more time hanging around college campuses to see what kids do with computers (see Bill's Hideaway at http://jeffmatthewsisnotmakingthisup.blogspot.com/2005/03/bills-hideaway.html).

I take it my suggestion has not been heeded.

I base this conclusion mainly on the continued self-delusion by the folks in Redmond as discerned in Mr. Ozzie’s memo—which is dramatically recounted in today’s WSJ, as if writing an email actually changes the focus of a large corporation whose entire existence is based on sales of computer software.

The biggest delusional whopper in today's article has to be this:

Microsoft, he [Mr. Ozzie] wrote, has long “understood mobile messaging,” but “only now are we surpassing the Blackberry.”

Surpassing the Blackberry!

Where, on earth, is Microsoft surpassing the Blackberry? Possibly, in a building on Microsoft’s Redmond campus, there is somebody who prefers Microsoft’s solutions to the Blackberry. But I doubt it.

More likely the “surpassing” of which Mr. Ozzie speaks involves some sort of great technical prowess measured by lines of code and terabytes of gigaflops by which Microsoft has crammed sixteen thousand superfluous functions into its mobile messaging software, none of which are easy to use—as compared to the handful of things Blackberry does spectacularly well.

The simplicity and focus of the Blackberry is, not coincidentally, what saved Intuit, and Adobe from the onslaught of Microsoft. And it is what might save Google.

In his memo, in fact, Mr. Ozzie hits on that very attribute which has, thus far, made Google the perceived threat to Microsoft’s model:

But it is not Ray Ozzie that needs to be convinced of Google's strength. It is Bill Gates, who, according to the always-breathless WSJ article, "to be sure, retains that role as Microsoft's chief software architect, and isn't expected to give up the title anytime soon."

What I suggest Mr. Gates give up is those twice-a-year trips to the woods.

Instead, I suggest he get on a bike, ride to the local Peet's, and watch what people are doing with the internet, and the iPod, and the Blackberry.

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.

36 comments:

Jeff, why do you find it odd that Gates would go off on his own every year to read up on technology and to pay attention to what kids are doing with computers? Both seem like perfectly sensible activities to me.

What nobody seems to get is that Gates, who is always portrayed as an uber-geek is really the poster boy for the most savage form of capitalism. He does not have creative ideas but he's great at appropriating the innovation of others and then crushing the competition. From the time he and Paul coded the most primitive form of DOS for the 8080--after modeling it on DEC's PDP-11 OS--to the present MIcrosoft has been mashing all the bells and whistle's ofther people's work into a singularly unfriendly, bug-riddled herd of "products". Were it not for the monopoly that Gates created through extreme cunning, nobody would use anything Microsoft.

I don't think Jeff claims to know more about technology than Mr. Gates (or anyone else at Microsoft). But that doesn't mean you can't have a better view of how the market will react to a particular technology or product than the makers of that technology or product. In the 70's and 80's you didn't need to know how a carburetor worked to realize that small, fuel efficient Japanese cars would destroy the big three's strangle hold on the US auto market. And today, you don't need to understand the difference between a terabyte and a gigaflop to see that the writing is on the wall for a company that, relying on its monopoly, sells substandard proprietary software to a population that would prefer not to use it (and will not use it given a choice).

Jeff's conceit seems to be that he can tell us how the market is likely to react to Mr. Gates' approaches. This conceit is based upon the idea that he has expertise in the market that is superior to that of the indexes, i.e. that of a rock.

I would like to hear his response to the oft asked but never answered question about his fund's size, versus its size 3 years ago, so that we can all tell whether an investor in his fund would have gotten better results by investing in Ram Partners (who are the partners?) or by standing on the roof of a building throwing their money into the wind.

Jeff seems oddly reluctant to address straightforward questions as to his competence and expertise, like the obvious one: What is the fund size today versus 3 years ago? Why is he reluctant, or rather unwilling, and why does he delete posts asking him to prove his claims of market superiority? We have to guess. My guess is that he has lost a lot of money by being wrong on more issues than he is right on, and thus does not want to discuss his performance. He is all too willing to discuss the performance of those he criticizes, including the most successful people on the planet, but deletes questions that are reasonable, polite, and well framed.

This makes for a credibility problem. Put simply, if he won't answer easy questions about his acumen, preferring to erase them, the only inference we can draw is that his performance is abysmal, and that his expertise is a hollow sham. His inability to prove otherwise underscores that it is a sham, and is nothing more than some sort of transparent propaganda to advance the agenda of his and his hedge fund friends, then to provide reasoned market commentary and observation.

This is Mr. Matthews' chance to silence his critics, and to prove that he is worth listening to. The question is obvious:

What is the current size of RAM Partners, compared to the 2002 number cited of $65 million?

If the number is substantially lower, then we can assume that he either lost his investors' money, or they redeemed their capital, for whatever reason.

This simple empirical test is not insulting nor intended to do anything besides enable us to evaluate whether Mr. Matthews is an empty suit, or successful at his stated profession. That in turn will enable us to evaluate whether his statements are deserving of consideration, or are typical of the sorts of observations that have cost his investors a fortune, and/or resulted in them going to greener pastures.

I hope that Mr. Matthews sees fit to clear the air and simply tell us how his approach has done over the last 3 years, so we can decide for ourselves whether he has anything meritorious to say.

If he removes this comment, or elects to be non-responsive, that should tell everyone all they need to know.

Thank you in advance for clearing this area of concern up for us, Mr. Matthews.

Thank you in advance for clearing this area of concern up for us, Mr. Matthews.

And I thank Jeff in advance for not feeding the trolls! My advice is, if you want to know the size of a partnership, go out and start one yourself. The size of RAM Partners is none of your business. If Jeff ran a public company or an open partnership, he would have a duty of care here, but he owes you exactly jack squat. Which is presumably why you get jack squat in return for these rambling screeds.

DaleW, the Securities & Exchange Commission disagrees. They think knowing the size of all private partnerships is the public's business provided they are of a certain size... and I assume RAM Partners meets these size requirements. Presuming that he follows the registration requirements, we'll know in due time the size of his partnership. Of course, if he doesn't file we'll know that the firm is extremely small.

As for returns, eli, it would likely be illegal to publish the returns of a private partnership on a public website such as this.

"As for returns, eli, it would likely be illegal to publish the returns of a private partnership on a public website such as this."

That's odd, because in years when Rocker Partners LLP decides to let a reporter know their returns (usually in years like 2004, but not 2003), they are happy to publish to them what their returns are.

let's face it, people, Jeff has been on Wall Street for 25 years, has no reason to be biased against Overstock and Microsoft (he is long GOOG, but that's not any reason to disclose that fact in a MSFT bash column...after all there is that vaque boilerplate gibberish at the bottom of the daily stretching for a pearl of wisdom column).

Oh yeah...altough he used to be one, all sell side analysts are incompetent too. Things the wise one has educated me on while reading this blog. I am learning, and only wish I could pay for this service.

Jeff is entitled to comment, and be wrong, if that is the case, on his own blog. All commentary by everyone involved in the stock market reflects their own position,is self-serving by nature, and does not involve malevolent intent.

Please disregard the silly people...BUT, if by any chance you do have good programming skills, society would indeed be better served by your coming up with better alternatives than MSFT products.

Wow!!! I must say that vituperation is NO substitute for rational discourse. When a person is presenting the product of reason, whether the future proves the conclusion right or wrong,a real human being is proud to sign one's own name. Aliases (aka screen names)properly belong on the wall of the Post Office.

Web based applications are here; Gmail if you will. Microsoft must move to an on-demand model or they lose. They are wise to do this. As they push the low end apps to a web model, they are moving further into the mid market and will be major players in 5 years. To underestimate these folks is a mistake.

I don't need, want, or use a Blackberry personally but from what I have seen from helping other people with theirs, there is a lot of room for improvement. I have no idea if Microsoft has or will come up with a product that is actually superior, but I recall that in the past Microsoft has been able to create competitive products over time. Given that they still have excellent market share with Outlook/Exchange, and since I don't see why the Blackberry has any lock-in at all, I assume that Microsoft may be able to move into that market successfully.

Look. Jeff has been more than happy to be represented as the manager of a "$65 million fund" 3 years ago.

His claim to expertise is based upon his investment acumen.

I'm not asking for a year to date fund performance prospectus. I'm asking in round numbers what his fund size is, so we can tell whether his investment acumen has resulted it a gain, a net break-even, or a substantial loss.

That is reasonable. If I create a blog based on my stock analysis, I shouldn't respond in outrage when someone asks "how as all that analysis panned out for those you invest for?"

Again, if Jeff can't or won't answer a straightforward question as to his fund size, that's fine.

It also speaks volumes as to his "wisdom" and the weight that should be assigned to his "insights." If you have a problem with that, also fine - why should anyone believe a word written by a guy whose track record of success is a huge question mark? Other than you like his grammar and punctuation? If you are reading because he has depth on the business viability of the companies he is commenting on, it is fair to ask if he has ever run a company, or been in business. If you are reading due to his keen wisdom on company performance in the public markets and likely investment results from following his lead, it is fair to ask how his track record has done. That's all I'm asking. Kind of like the guy that says that he made millions working from home for an hour a day - my response is, prove it. That's where the BS usually walks, in my experience.

Jeff, how has your track record been for the last 3 years? Are you at around $65 million, or around $28 million? If you won't tell us, when you have been more than willing to be public about it in the past, why is it a secret now that you are writing this blog?

These are reasonable, politely framed questions.

I think we all deserve straight answers. I'm curious. So are your readers. And if they aren't, why aren't they? Why is your performance top secret when you are so generous with your discussion of everyone else's?

This blog isn't Ram Partners' prospectus and therefore does not merit Jeff's portfolio performances. I realy doubt that these people who demand a "straight answer" about the fund size is considering investing with Jeff. So, no... we probably don't deserve to see the fund's result unless we have direct investments with Ram Partners.

Most of Jeff's readers come to get some of Jeff's insights. Sometimes we disagree with his views, and we "deserve" to comment our opinions (hopefully supported with good reasoning).

Jeff is allowed to scrutinize public companies, because they are "public" companies, in which some of his readers may have invested stake. We come here to read good comments, which may help in researching potential investments.

Honestly, we probably don't deserve his insights. He never tells you to fully agree with his views. I think he even encourages good countering points, if well supported. If you Jeff-haters really dislike this blog... stop visiting.

I don't care if Jeff has only 2 cents left in his fund that’s not the point of this blog. As far as I know he has never mentioned stock picks, positions, or performance and even if he has compounded money at 25% per annum since his fund inception or if he’s blown his fund out, I don’t care and neither should you. I’m here to read different perspectives about issues concerning publicly traded companies as well as get a few laughs.

You're obviously an amateur, sooner or later you’ll learn to either do your own homework or hire a professional. The one thing I’ve learned over the last twenty years that I’ve been investing is that you need to have an open mind, if you don’t you’re not going to be very successful. Differences of opinion are what make a market and no one is right all the time.

It's my opinion Bill should take a trip to Estonia and figure out how 2 young trader lads managed to breach firewalls. Then Bill should come back and instruct his internet security rocket scientists to figure out how to stop young trader lads from cheating. Then he should instruct his sales force to sell "anti-trader lad" internet security software to everyone:

Had to offer my .02. Jeff's analysis value is tied to his ability to be more insightful than a bag of potatoes. Opinions are like, well...everyone has one. What differentiates good ones from bad ones is the source. I think Eli's question is more than fair as Jeff's opinion's value is predicated on his credentials, which are how his fund has done.

The reader who said his opinion is valid and valuable regardless of whether he has lost it all or not is delusional. An authority who's performance is terrible has far less credibility than one that has done well, as the measure of his opinion's worth IS tested by the market, as expressed by his performance. I didn't get the sense that eli was asking for granular fund performance, just a feeling for whether he's at or above the $65 million he cited, or far below it. Seems reasonable and germaine. The apologist views arguing that he doesn't have to disclose are correct, he doesn't, but then his opinion drops to that of a teenager at the library at that juncture, as he may well have lost most or all of his investors' money following his own advice, and won't tell, making it seem likelier than that he did well. That seems pretty obvious.

I can start a blog on doing my own surgeries, and sound very knowledgeable to many, but if all my patients have died that would be important to know. If I refuse to discuss it, citing privacy concerns or whatever, that is my prerogative, but I would expect that the vast majority then understand that I am a charlatan.

I maybe delusional, but I never said “his opinion is valid”. First of all I do NOT agree with everything Jeff says here, but he has raised some very thought provoking questions within this blog and to me that’s the real value regardless of the performance of his fund.

I know a few very smart people who have lost a lot of money and / or have had poor track records for periods of time (tech bubble), but I would take their advice much more seriously than some day trader who made a lot of money during the late 90’s!

Look, the market is a reflection of many opinions. At many times, intelligent individuals will have completely opposing views. And you as the investor should carefully consider all arguments. It's your duty to make decisions on which points make the most sense. Jeff simply offers his findings (whether they are right or wrong), and he usually does it in an entertaining way, which makes his posts fun to read.

Commentors have all the right to speak our views. If you can counter with strong points, then open-minded readers will hear them out. If you don't agree with what Jeff says, then I'd think it's more productive to support your views with good arguments instead of trying to devalue Jeff's opinions.

If Jeff is downplaying a company, and you are a PR from that company and disagree with what Jeff has said, then you should counter with points that matter and stick to the point. Tell us why the subject company is better than what Jeff makes it out to be. This is what matters, not how big or small Jeff's fund is, which can be a result of many variables. Most of Jeff's readers aren't stupid. We can make our own decisions. But strong arguments will convince his readers better. If you disagree with Jeff, tell us why instead of diverting the attention to lame attacks... that's just childish.

Tahoe kid,If I may, let me try to communicate my point a little differently (because I do think it is germane to the story written by Jeff). It is simply this:

Beware of the hedge fund manager that thinks he/she knows more about running a technology company than the guy who actually built a $288B company. If you'll recall, the same arguments were made about Microsoft 10 years ago -- Gates is an idiot and Microsoft is dead. Suggesting that Gates should spend his time at Peet's rather than organizing his time in his own way is the height of arrogance... in my humble opinion.

Hi Jeff - I get your point about how a company with a "singular" focus, such as Google, should maintain and widen its lead in market share, as opposed to a company whose focus is "scattered" (for lack of a better word) across a number of platforms, such as Microsoft - i.e., X-box, MSN, SQL Server, etc.

I must, however, respectfully disagree with your viewpoint on MSFT. Bill Gates, love him or hate him, has been in the computer business for a long time. Over the years, Mr. Gates has shrewdly cobbled together an empire based on software that, despite its flaws, has risen to dominance at the expense and the mis-steps of other companies in the same space.

Don't think for a second that Bill Gates and the folks at Microsoft aren't "focused" on the threats to their business - they recognize the profitable opportunities which lie in online business models. Microsoft is, in my opinion, as focused on their competitors as they are on their product offerings.

An example of this can be found on Microsoft's web site where the company recently announced the development of Internet-based software services such as Windows and Office. The link is posted below for all to peruse:

The interesting scenario will be seeing how GOOG responds to MSFT's "shot across the bow" in their attempt to enter the ad business via their dominant software platforms (i.e., Windows Live and Office Live).

I think MSFT will be successful in due time, after some fits and starts (just like their software, I suppose), but I could be wrong, though.

Aaron: yes, Gates is smart and runs the most profitable monopoly in the world; yes, he sees the writing on the wall; yes, he will unleash his best minds to deal with it.

But he has done this kind of "take back the internet" before. It was called ".Net" and it was going to be the Next Big Thing...and it went nowhere, because users didn't understand it and didn't like it and didn't need it.

I use Microsoft's internet-based products every day. I'm a user, not a tech-head. I couldn't write 1 line of software. I just use the products. And from my own experience as a user, Microsoft's internet-based products stink.

And the reason they stink is that Microsoft's core essence is the sale of highly profitable software--operating systems and Microsoft Office and server systems.

Everything Microsoft tries to do on the internet will be subject to one question: "How does this affect our core franchise?"

And anything that shifts software usage to the internet is a threat to that core franchise.

It will not be easy to make that shift--it's the software equivalent of Unisys trying to shift to minicomputers, or DEC trying to shift to desktop pc's, or HP/Compaq trying to shift to digital music players.

Doesn't mean it can't happen, doesn't mean it won't happen. Just means it's a lot harder than holding press conferences and making great statements.

Interesting news on Bloomberg today - a report is out that George Soros (!) bought shares of MSFT, along with some other tech names like IBM and SUNW last quarter for his hedge fund. Makes one wonder what the "smart money" is thinking these days about MSFT's prospects for future revenue growth from recently announced initiatives.

Jeff's point is simple but important and most technology companies fail to practice it because they think they are so smart. The point is to go out into the market and see what people are doing and what they are buying and respond to that demand. Rather than sit in a conference room or cabin and try to pretend you know what people want. MS has a lousy track record of developing new ground-breaking software that opens new categories. They are constantly chasing after other companies products and services so they should definitely be out looking around because that is how they have been successful thus far. There is nothing going on in Redmond except counting dollars and knocking off another companies product. Or as one MS employee told me "nesting and vesting."